By Yinka Adegoke

NEW YORK |
Thu Sep 2, 2010 3:16pm EDT

SAN FRANCISCO – As the world’s biggest maker of computer chips, Intel Corp. can’t afford to ignore its huge blind spot in mobile phones.

Eighty percent of today’s personal computers use Intel processors. But Intel is absent in smart phones, which are threatening PCs as gateways to the Internet. One reason is that Intel still doesn’t have good ways to design chips to use less power, so Intel’s products drain batteries more quickly — something smart-phone makers won’t tolerate.

The dynamic has put Intel at risk of missing out on the next great opportunity for semiconductor companies. That is why Intel has decided to buy the wireless-chip division of Germany’s Infineon Technologies AG for $1.4 billion. With it, Intel gets the chips used in Apple Inc.’s popular iPhone.

The all-cash deal, announced Monday, is an acknowledgment that Intel has missed the boat on mobile phones, and it gives the company an opportunity to correct its course.

The challenge is similar to the one Microsoft Corp. is facing with Google Inc. as software is increasingly being delivered over the Internet instead of being stored on PCs, the way Microsoft has long approached it. Like Microsoft, Intel is the undisputed leader in a market that’s under attack from a fast-rising force from the outside.

Intel is trying to play catch-up before it falls too far behind.

Intel bought mobile software maker Wind River Systems for $884 million last summer, and the company has spearheaded development of the open-source Moblin software, which is designed to run on mobile devices that use Intel chips.

Two weeks ago, it announced plans to buy computer-security software maker McAfee Inc. for $7.68 billion, which would be the biggest acquisition in Intel’s 42-year history once it gains the expected approvals.

As mobile phones become increasingly enticing targets for hackers, security companies have been developing ways to protect those devices. With McAfee, Intel would be able to bake security into its mobile chips — including those from Infineon.

But even as Infineon’s products give Intel quick entry into the mobile-chip business, Intel is fighting its own history with the Infineon deal, which could prove to be a costly distraction. Many analysts aren’t optimistic about Intel’s chances, pointing to its spotty track record with acquisitions.

"We feel like we have seen this movie before," analyst Craig Berger with FBR Capital Markets wrote in a research note to investors.

Berger said Intel would gain a strong business with a "sizable presence" among big cell-phone makers and the expertise in building chips based on a low-power design that is widely used in cell phones.

However, he said he is skeptical of Intel’s ability to execute outside of its core market, which is making microprocessors that act as the "brains" of PCs.

Intel needs to branch out because that market is under pressure. Last week, Intel lowered its forecast for the third quarter, blaming weaker-than-expected consumer demand for PCs. PC makers also have been cutting prices drastically in recent years, and in lean times have been buying cheaper chips from Intel just to maintain slim profits.

Intel had a division that made chips for smart phones, but sold it off four years ago in a round of cost-cutting. Since then, Intel has focused on its core business. Meanwhile, use of the Internet on mobile phones has exploded, and companies that make chips for phones have benefited from demand for more capable — and expensive — chips.

Phone chips need to sip power instead of guzzle it, and even Intel’s energy-efficient designs are criticized as too power-hungry for today’s smart phones. Phone makers need to make awkward contortions, such as building bigger devices, to accommodate the need for a bigger battery — which most are loath to do.

With an annual research-and-development budget of nearly $6 billion, Intel is equipped to pour incredible resources into essentially any chip project it chooses. After its exit from the mobile-phone chip market in 2006, it focused on other types of communications technologies. Buying its way back into the market is the fastest way for the company to make up for lost time.

David Perlmutter, an Intel executive vice president, said in an interview with The Associated Press that the decision to sell the mobile-chip business in 2006 was "the right decision at the time," and that Intel is buying a more complete lineup of technologies from Infineon than those available in the business it sold.

"I hope that we’ve learned our lessons and that we’re way more focused," he said.

With Infineon, Intel would become the fifth-biggest supplier of mobile-phone processors if the deal closes as expected in the first quarter of next year.

It would get a running start in a market dominated by Qualcomm Inc., Texas Instruments Inc. and STMicroelectronics, which together own about half the total market for processors and other communications chips for cell phones, according to Gartner Inc.

Still, Intel would be a small player: the Infineon division owns only about 5 percent of the market.

Analyst Tristan Gerra with Robert W. Baird & Co. warned that the deal might be "too little, too late" for Intel’s push into smart phones, and he said that Intel will have to invest heavily to keep Infineon’s products competitive with the rollout of the next-generation cellular networks known as 4G.

Gerra noted that the mobile-phone business moves faster than the PC business.

"Whether a PC company such as Intel can move nimbly given more rapid new product cycles within the mobile-phone industry remains a significant question mark," he said.

MILAN – A pair of fender-benders, two technology-loving hitchhikers and 22 hours blocked at the Russian border. That’s the balance sheet so far for a team of driverless vehicles on a 13,000-kilometer (8,000-mile) roadtrip from Europe to China.

A group of Italian engineers from the University of Parma’s Vislab are testing sensory technology that allow unmanned vehicles to avoid obstacles on the longest-ever roadtrip of driverless technology.

One month into the three-month journey, most errors have been human.

"We were trapped in customs for one long day. We had a small accident — well, two small accidents, caused by human error. As far as the technology is concerned, everything has been smooth. We are very happy," project leader Alberto Broggi said Tuesday.

The first accident occurred a couple of days into Russia, when the group stopped for the day and got out of the vehicles. One team of engineers turned off the sensory equipment, but neglected to switch off the automatic driving mechanism.

"So it was able to steer and drive, but it had no perception. It couldn’t see anything," said Broggi, who is monitoring the journey and troubleshooting from Parma. The vehicle drove right into the rear of another driverless van parked three meters (yards) away.

"The second accident is even more stupid than the first," Broggi said. One of the battery-powered vehicles, was being loaded on to a truck to be recharged, and it banged into a truck, taking off a bumper.

The Italian scooter and vehicle maker Piaggio, which owns the four driverless vehicles, is sending spare bumpers, Broggi said. And now the team has a check list to make sure all systems are off when they stop for a break.

Vislab’s goal is to log 13,000 driverless kilometers (8,000 miles) by the time the convoy arrives in Shanghai on Oct 28, for a final demonstration at the World Expo. So far, the vehicles have logged 2,300 autonomous kilometers (1,400 miles) of the total 4,100 kilometers (2,500 miles) traveled by the convoy to date, the balance in tow.

Still, Broggi is optimistic they will make up the mileage on the zigzagging route through Asia.

The departure from Italy was delayed by logistics, so the vehicles were towed to Belgrade. Then the team got stuck on the Russian border for 22 hours waiting for proper authorization to bring the vehicles into the country — not because of concerns over the unmanned technology but for proof of vehicle ownership, Broggi said.

To make up the time, the vehicles were towed again.

And Moscow drivers, it turns out, are not ready to share the roads with autonomous vehicles — so the automatic driving mechanism had to be turned off.

For the journey, the driverless vehicles travel in pairs, with the driverless vehicle taking cues from a lead van being driven normally. But in Moscow, drivers cut in between the vehicles, blocking the signal, and the unmanned vans’ impulse to stay within the traffic lines was futile given the chaotic driving patterns, Broggi said.

"It was impossible. In crowded areas, if no one is respecting the rules, there is no way to navigate. The only thing you can do is avoid hitting someone," Broggi said. Yet, he would not rule out autonomous vehicles in chaotic situations in the future: the rules for the driverless vehicles would just have to be rewritten to match the environment.

The convoy has been logging roughly 200 to 230 kilometers (143 miles) a day, and was somewhere between Niznij Novogorod and Saratov on Tuesday, two days after leaving Moscow where a pair of enterprising hitchhikers flagged them down with a banner endorsing future technology. They got a short 15-minute ride for their effort.

By Ritsuko Ando and Paul Thomasch

NEW YORK |
Mon Aug 23, 2010 12:34pm EDT